OBG talks to Karel De Gucht, EU Trade Commissioner

Karel De Gucht, EU Trade Commissioner

Interview: Karel De Gucht

What are the key benefits of the Economic Partnership Agreement (EPA) for both parties?

KAREL DE GUCHT: The immediate purpose of the interim EPA concluded in 2007 with Papua New Guinea and Fiji was to ensure trade flows between the region’s two most important economies and the EU continued uninterrupted after the expiry of the Cotonou trade preferences in December 2007. This mainly concerned traditional exports like palm oil or sugar, which without preferential access would have faced high import duties.

We also used the opportunity of the interim EPA to listen to the needs of our African, Caribbean and Pacific (ACP) partners. Our shared ambition has been to establish an even better trade environment to help attract investors and support economic diversification. Because the interim agreement is two-way, PNG’s potential as a destination for European investment is much more attractive and I hope to see significantly increased trade flows on both sides as a result.

An innovative feature of the agreement is the flexible application of the rules of origin for tuna and other fish products, which allows PNG to process fish caught by any vessel for export to the EU. Major investments are now taking place in PNG’s fisheries sector as a direct consequence of this practice, which is known as global sourcing. This system combines – in a sustainable fashion – modern fleets with access to natural resources to provide a boost to the local economy. These investments will create local employment and income, and are a good example of trade-induced inclusive growth. Our global sourcing report concluded that the interim EPA would lead to the creation of about 53,000 jobs in the fisheries sector by 2016, representing 7% of total formal employment in PNG. The new jobs would be filled almost exclusively by PNG nationals.

Can the scope of the EPA be further expanded?

DE GUCHT: The interim EPA is just one step in the process of making trade relations between ACP states and the EU more development-oriented. The process should continue, either through the widening and deepening of the agreement, or by concluding a comprehensive EPA. Additionally, other countries could join the interim EPA. More can be done on fisheries, labour and environmental issues, as well as appropriate financial support with a thread – sustainability – common to any deeper commitments the parties could agree to. I am a firm advocate of free trade in services because it makes developmental sense. We wish to build a trade relationship with PNG that helps the country improve its competitiveness and thereby reap the full benefits of trade in a modernised global economy.

What can private and public sector participants do to reduce reliance on resource-driven growth?

DE GUCHT: Resource-driven growth is a mixed blessing. It tends to generate little direct local employment and revenue, but if it is managed wisely, the export and tax revenues can yield sustainable dividends in the rest of the economy. Unfortunately, we all know examples where this has not happened. “Dutch disease” also risks becoming a serious problem, further affecting the competitiveness of the economy of PNG.

Economic diversification is therefore of paramount importance. Investment in sectors like agricultural processing or fisheries creates direct benefits for the population and sends a positive message to prospective investors. Free access under the interim EPA is one way to improve the investment climate, and has already shown its potential to generate investment and local employment in the fisheries sector.

PNG and the EU want to widen the interim EPA’s impact and spread the benefits to other sectors, so we have started a dialogue with the private sector covering industries outside fisheries. The diversification process must be accompanied by appropriate government policies in infrastructure, public services and the business environment. In its development and trade policy, the EU will continue to support PNG’s authorities in their efforts to generate a process of inclusive growth.

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The Report: Papua New Guinea 2012

Economy. chapter from The Report: Papua New Guinea 2012

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